Currency Movers for September 25, 2015

25 September, 2015

EURUSD, Daily

The 1.1261 resistance was violated briefly yesterday but the sellers overcame the buyers pretty quickly and the 4h chart created a bearish pin bar with a close below the 1.1261 resistance. Since then the price has been moving lower creating a daily shooting star. This together with Yellen’s promise to raise rates by the end of the year 2015 suggests further dollar strength and euro weakness. However, in the daily picture EURUSD is still range bound and it’s therefore likely that the potential moves lower are gradual at first as the market needs to work its way through the support levels. Price is trading now at the lower Bollinger Bands and near historical support with Stochastics trying to tick higher in the oversold levels. The nearest support range is at 1.1017 – 1.1087 while the first daily resistance is at 1.1296, the yesterday’s high.

Fed Chair Yellen expects a rate increase this year, saying that “Most FOMC participants, including myself, currently anticipate that achieving these conditions will likely entail an increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter.” Of course, she gave herself ample wiggle room, saying “But if the economy surprises us, our judgments on appropriate policy will change.”Also, she cautioned that the Fed “…cannot be certain about the pace at which the headwinds still restraining the domestic economy will continue to fade.” So, a bit more certainty on the Fed path, but with plenty of space to delay rate liftoff if the Fed judges the economy is not ready. As for the economy, she said it is “no longer far away from full employment” on balance. “In contrast,” she noted, “inflation has continued to run below the Committee’s objectives over the past several years, and over the past 12 months it has been essentially zero.” Inflation expectations remain well anchored, she said, while temporary effects (declining energy and non-energy import prices) are the main cause of weak inflation.

Atlanta Fed’s Q3 GDPNow model dipped to 1.4% compared to its 1.5% estimate a week ago coinciding with the FOMC decision. As the regional Fed noted: “The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 1.4 percent on September 24, down slightly from 1.5 percent on September 17. The decline occurred on Monday when the model’s forecast for third-quarter real residential investment growth fell in response to the existing home sales release from the National Association of Realtors.” That’s still some distance from the average Blue Chip forecast near 2.5% (down from 3.2% in late July) and compared to our own 3.0% estimate.

The 5.7% August U.S. new home sales surge to a 552k rate extended the July bounce to a 522k (was 507k) pace from an oddly weak 466k (was 481k) seven-month low of in June. New home sales are outperforming pending and existing home sales while undershooting the various construction aggregates. New home sales have risen 104% from the 273k record-low in February of 2011, alongside smaller cyclical climbs of 45% for pending home sales and 54% for existing home sales from lows in 2010. We saw larger cyclical climbs of 136% for housing starts and 128% for permits from lows in 2009, and 126% for new home construction from a low in 2011. Median prices rose by 0.5% to $292,700, though the y/y gain fell to to 0.3% in August from 3.8% (was 2.0%) in July, while new home inventories rose by the same 0.5% to a 216k five-year high, following downward prior revisions.

SNB Plays The Waiting Game: The SNB confirmed its monetary policy stance at last week’s meeting and there was no major surprise in the statement. The central bank’s main scenario, as reflected also in yesterday’s quarterly bulletin, remains for a continuation of the moderate recovery in the global economy and a stabilisation in Swiss growth.

Currency Movers Charts

In yesterday’s report we discussed the declined in UK Sterling and pointed out that GBPUSD is at levels that could attract buyers. This is what happened and today, while EUR is down the GBP is up. Due to euro weakness Sterling has risen most against the EUR but there are other interesting GBP pairs too. GBPJPY formed a bullish pin bar yesterday and is enjoying good upside momentum today. The nearest resistance level is at 186. GBPCHFbehaved very similarly and is up today after forming a bullish pin bar yesterday. The nearest resistance is at 1.5100.

I said in yesterday’s analysis that AUDUSD is approaching daily Bollinger bands and support which indicates that it is time to close the shorts opened after the shooting stars were formed. The pair touched the 1.5 sd band yesterday and has been reacting higher since. Today AUDJPY is moving higher after the AUDUSD found support yesterday and Japan’s inflation report adds to what we view as strong pressure for further easing measures. This argues for AUDJPY to move higher. The next resistance is at 85.88.

Significant daily support and resistance levels for these pairs are:

Main Macro Events Today

Japan’s core CPI fell 0.1% y/y in August after the flat (0.0%) reading in July. Core CPI rose at a 0.1% y/y pace in June and May. The core grew at a 0.3% y/y clip in April. We saw a 2.2% y/y rate in March, with dramatic slowing in annual growth since April due to the April 2014 tax hike. Total CPI grew at a 0.2% y/y pace in August, matching July after the 0.4% y/y rate in June. The global price backdrop continues to run contrary to the BoJ’s efforts to boost prices, as imported energy products produce a powerful drag on the core CPI (excludes fresh food but includes energy). This report adds to what we view as strong pressure for further easing measures, although we remain unconvinced of the effectiveness of ultra-accommodative policy on Japan’s economy.

US GDP: The third release on Q2 GDP is out today and we expect the headline to be unrevised at 3.7% (median 3.7%) from the second release and 0.6% in Q1. Revisions should be mostly offsetting. We expect consumption to be revised up by $8 bln, construction up by $5 bln and net exports up by $2 bln. For downward revisions we expect intellectual property to be revised down by $4 bln and inventories to be revised down by $9 bln.

US Michigan Consumer Sentiment: The second release on September Michigan Sentimentshould reveal an 87.0 (median 87.0) headline which would be revised up from 85.7 in the first release but still down from 91.9 in August. The current conditions index declined to 100.3 from 105.1 in the first release and the expectations index dropped to 76.4 from 83.4 in August. There has been a relatively consistent tendency for upward revisions in the second release over the past two years and this should lend some upside risk to the release.

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